Services

Near £10bn insurance mis-sell bill

The bill for mis-sold insurance at Lloyds spiralled to nearly £10 billion today after the taxpayer-backed bank admitted it is set for another 550,000 complaints.

The latest provision to cover the cost of compensating customers mis-sold payment protection insurance was much greater than expected at £1.8 billion.

However, Lloyds sought to highlight its return to health by forecasting a small profit in full-year results on February 13 and offering guidance on the steps it is taking towards dividend payments and the sale of the Government's stake.

Chief executive Antonio Horta-Osorio, who has overseen a 70% rise in the company's share price in the last 12 months, said the business had been "reshaped, simplified and strengthened" over the last three years.

But the bank's new provision on PPI is far higher than the additional £465 million revealed last week by fellow state-backed player Royal Bank of Scotland, a move which took its current total to £3.1 billion. The bill for the whole industry is now in excess of £20 billion.

Lloyds set aside £3 billion in 2013, despite a reduction in average monthly complaint volumes to around 37,000 in the final quarter of last year.

However, its latest customer surveys suggest that the Halifax and Bank of Scotland owner can expect another 550,000 complaints on PPI, while it has also revised its forecasts for those claims deemed successful.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: "The PPI number is disappointing not only in terms of the cumulative figure now nudging £10 billion, but also because it perpetuates concerns around when this saga will actually come to an end."

The bank has also made a further provision of £130 million relating to the sale of interest rate hedging products to small and medium-sized businesses, bringing the total amount set aside to £530 million.

Despite the provisions for legacy issues, Lloyds still expects to make a small statutory profit for the last year and to better City expectations with an underlying profit of £6.2 billion for 2013.

The bank has been a grateful beneficiary of the Government's Help to Buy scheme for house-buyers, as well as the Funding for Lending initiative, as mortgage borrowing has taken off.

Lloyds last paid a dividend to shareholders after it published its half-year results in 2008, just prior to it requiring a £20 billion rescue by the taxpayer.

It is still 33% state-owned but Lloyds said preparations for the possible future sale of shares to the public were under way. In September, the Government began the process of selling down the 39% shareholding by offloading a 6% stake to institutional investors.

A public sale of shares in Lloyds, encouraged by demand for the recent privatisation of Royal Mail, will fuel hopes that the bank can be returned to private ownership in time for the 2015 general election.

It also revealed that it will apply to the banking regulator later this year in a bid to resume dividend payments to shareholders at a "modest" level.

Shares were more than 3% lower as some analysts had been expecting dividends to be reinstated earlier and by more than today's guidance.

The bank added that it plans to move to a dividend payout ratio of at least 50% of sustainable earnings in the medium term.

Mr Horta-Osorio described the return of dividend payments as an "important step" in the bank's efforts to rebuild trust and confidence in the group.

He added: " We expec t to apply in the second half of 2014 to restart dividend payments and to deliver progressive and sustainable payments to shareholders thereafter.

"This will be another important step in our journey to rebuild trust and confidence in our group."

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